Don’t put all your eggs in one basket when it comes to retirement

Walking out of the office for the last time is a moment Canadians work their whole lives for. With every passing year, retirement edges a little bit closer – a reward for decades of hard work. But what if well-laid retirement plans are laid to waste by a crashing real estate market? It could happen – and it would be disastrous. So don’t put all your eggs in one basket when it comes to retirement.

A recent Sun Life survey indicated that 24 per cent of Canadians are planning to use their home as their main source of retirement income. But, with household debt levels creeping higher and real estate markets notoriously fickle, is this the best strategy?

Dean Connor, the CEO of Sun Life Financial, is sounding alarm bells about the precarious position many Canadians have put themselves in. He warns that the inevitable increase in interest rates will drive down home values and put some retirement plans at risk –

“The most vulnerable – i.e., the one million Canadians whose current debt servicing costs are 40 per cent or more of disposable income – may have to sell their real estate, crystallizing losses and setting back their retirement plans,” says Connor.

“Carrying debt into retirement is not a strategy I would recommend,” says Schwartz. “Most retirees experience a decrease in income which can make paying off debt more of a burden. Getting out of debt – including paying off your mortgage – will allow you more time to enjoy your golden years instead of having to worry about your next debt payment.”

With that basic goal of a debt-free retirement in mind, Consolidated Credit has created the following roadmap to help you get there –

Start the countdown – Whether you are 5, 10, or 20 years from retirement, start counting down the days and also count your debt. Get together with a credit counsellor or trusted advisor and make a detailed plan for how you will leave the workforce debt-free and happy. Set attainable goals that you can keep track of and track them religiously. A good financial plan is not a “set it and forget it” proposition. It requires constant monitoring if you want to reach your goals.

Have a buffer – If you haven’t experienced that not everything in life goes as planned, you’ve been luckier than most! You never know when an unexpected expense will pop up that may derail your saving goals. If a debt free retirement is the goal, why not make a plan that will leave you debt free at 60, instead of your expected retirement age of 65? Best case scenario – you become debt free.

Downsize, downsize, downsize – Chances are, you bought your home to fit your entire family. But, as you reach retirement age, your young ones have probably moved out and now you have empty rooms to spare. You may also have purchased a second car to help handle the daily commute to the office – a commute you will no longer have to take. Why not free up some financial resources – and pay off debt – by moving to a smaller, less expensive home and selling your second car. The equity you free up will help you knock down your debt and give you more freedom to do the things that make you happy – which really is the point of retirement, isn’t it?

If you want to learn more about making responsible financial decisions, check out Consolidated Credit’s free Personal Finance educational section. If you’re struggling with debt, call one of our trained counsellors today at for a free debt analysis.

Here are some basic guidelines to help you create a budget by percentage of income and figure out the right budget percentages and a starting point. Remember that based on your individual living style, income, family circumstances, and location, the allocation may vary from person to person...Read full article

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